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Harvest Health & Recreation, Inc. Reports First Quarter 2019 Financial Results

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  • Total revenue for the three months ended March 31, 2019 increased 131% from prior year.
  • Total revenue for Q1 2019 increased 14% compared to Q4 2018.
  • Adjusted EBITDA for the 3 months ended March 31, 2019 was ($4.7) million (all dollars are in U.S. dollars, except where noted).

PHOENIX–(BUSINESS WIRE)–Harvest Health & Recreation, Inc. (CSE: HARVOTCQX: HRVSF), a vertically-integrated cannabis company with one of the largest and deepest footprints in the U.S., today reported the company’s first quarter fiscal year 2019 financial results. Harvest has continued to be successful in winning licenses in non-competitive and competitive application processes throughout the country, and has made a number of significant strategic acquisitions and mergers. Harvest’s ability to combine size, scale, capital, regulatory expertise and operational excellence are paramount to its success.

Management Commentary

“By adhering to our four core initiatives: building a world class team, aggressively expanding our retail and wholesale footprint across the U.S., building, acquiring and expanding brands and distributing them across our footprint, and continuing on a path of profitable growth, we believe that we can fulfill our objective of becoming the most valuable cannabis company in the world,” said Chief Executive Officer Steve White.

Financial Highlights for the First Quarter Ended March 31, 2019

  • Total revenue was $19.2 million, an increase of 131%, compared to $8.3 million in the first quarter 2018.
  • Total revenue increased 14% compared to $16.9 million in the fourth quarter of 2018.
  • Gross profit, excluding impact of biological assets, was $7.9 million, an increase of 83%, up from $4.3 million in the first quarter of 2018.
  • Gross profit margin, excluding the impact of biological assets, was 41% and 52%, respectively, for first quarter of 2019 and 2018.
  • Adjusted EBITDA was ($4.7) million, compared to $1.9 million in the first quarter of 2018.
  • Net loss was $20.0 million for the three months ended March 31, 2019, which is reflective of the planned investments in people and infrastructure to support the company’s growth initiatives and planned expansion.

Quarter End Highlights

Team Growth

  • In Q1, Harvest significantly added to its management team, including the hiring of: John Cochran, COO – Previous experience includes CEO Loudpack, President Fiji Water and CEO of Pabst Blue Ribbon, Kevin George, CMO – Previous experience includes CMO of Beam Suntory and VPGM of Unilever, and Johnnie Hernandez, Head of Integration – Previous experience includes Head of Retail Best Buy. John, Kevin and Johnnie join a team that combines deep subject matter in cannabis and CPG experience with expertise in building high growth businesses.

Harvest continues to build out its infrastructure, and ended Q1 with 476 FTEs, up from 386 FTEs at the end of 2018.

Capital Markets, Financing Activities and Growth Strategy

  • In early 2019, Harvest signed an agreement to offer $500 million of convertible debentures. The debentures are issuable, at Harvest’s sole discretion, in tranches of $100 million and have a 7% interest rate. The initial tranche of debentures will be convertible at the option of the holder to Subordinate Voting Shares of Harvest at a price of $15.38 per Subordinate Voting Share, and each subsequent tranche will be convertible at the option of the holder at a 15% premium to the volume weighted average price (or “VWAP”) of our stock as it trades on the Canadian Securities Exchange for the five trading day period immediately preceding the closing of the relevant tranche. Alternatively, Harvest can require that debentures be converted if the daily VWAP of our stock is greater than a 40% premium to the applicable conversion price of a tranche for any 10 consecutive trading day period.
  • Harvest also raised approximately $300 million raised in conjunction with its RTO in November 2018. Accordingly, including both the capital raised in conjunction with the RTO and the convertible debentures, Harvest has secured approximately $800 million in available capital. Funds have and will be deployed on planned capital projects and on planned acquisitions.

Acquisition Activity

  • During Q1, Harvest announced pending acquisitions that will increase its geographic footprint and expand its brand portfolio, including:
    • Falcon, which is expected to serve as a foundation in California for cultivation, manufacturing and distribution, as well as adding well-regarded brands like Cru and High Garden, as well as key personnel to the team.
    • Verano is expected to add licenses throughout the Midwest and East Coast, add edibles to our brand suite and will further strengthen our senior team.
    • Devine Holdings is expected to add to the Arizona footprint.
    • CannaPharmacy is expected to add to the East Coast footprint.

On a pro forma basis, Harvest along with Falcon, Verano, Devine and CannaPharmacy, generated $51 million of Revenue in Q1, or over $200 million annualized.

Retail Footprint Expansion

As of March 31, 2019, the Company operated 13 retail locations in 5 states. Significant expansion of cultivation, manufacturing and retail locations is expected to occur throughout 2019.

Balance Sheet and Liquidity

  • As of March 31, 2019, the Company had $116.3 million of cash and cash equivalents.
  • As of March 31, 2019, the Company had $28.9 million of debt outstanding.

Please see the supplemental information (unaudited) regarding Non-IFRS Financial Measures at the end of this press release.

Conference Call & Webcast

Harvest Health and Recreation, Inc. will host a conference call and audio webcast with Chief Executive Officer Steve White, President Steve Gutterman and Chief Financial Officer Leo Jaschke, Friday May 31st at 8:00am ET.

To participate in the conference call, please dial:

US toll free: + 1-844-695-5522
Canada toll free: + 1-866-605-3852
UK toll free: + 08082389064
International dial in: + 1-412-317-5448

Registration is required; please also plan to dial in at least ten minutes prior to the scheduled start time.

First quarter results will be available at: https://www.harvestinc.com/investors/investors/#financial-information

The conference call will be available for replay for three months at: https://services.choruscall.com/links/harv190423.html

HARVEST HEALTH & RECREATION INC.
Unaudited Condensed Interim Consolidated Statements of Operations
Three Months Ended March 31, 2019 and 2018
(Amounts expressed in thousands of United States dollars, except share or per share data)

For the three months ended
March 31,
2019 2018
Revenue $ 19,240 $ 8,335
Cost of goods sold (11,335 ) (4,018

)

Gross profit, before biological asset adjustments 7,905 4,317
Unrealized gain on changes in fair value of biological asset 5,772 3,929
Cost of goods sold on biological asset transformation (5,735 ) (3,559 )
Gross profit 7,942 4,687
Expenses
General and administrative 18,386 2,568
Sales and marketing 1,589 203
Share-based compensation expense 3,303
Depreciation and amortization 1,493 377
Total expenses 24,771 3,148
Operating (loss) income (16,829 ) 1,539
Other (expense)
Other (loss) (49 )
Foreign currency (loss) (375 )
Interest expense (775 ) (120

)

(Loss) income before taxes and non-controlling interest (18,028 ) 1,419
Income taxes (2,398 ) (608

)

(Loss) income before non-controlling interest (20,426 ) 811
Loss (income) attributed to non-controlling interest 378 435
Net (loss) income attributed to Harvest Health & Recreation Inc. $ (20,048 ) $ 1,246
Loss per share – basic and diluted $ (0.07 )
Attributable to Harvest Health and Recreation Inc. Shareholders $ (0.07 )
Attributable to non-controlling interest $ 0.00
Weighted-average shares outstanding – basic and diluted 284,310,532

HARVEST HEALTH & RECREATION INC.
Unaudited Condensed Interim Consolidated Statements of Financial Position
March 31, 2019 and 2018
(Amounts expressed in thousands of United States dollars)

March 31,
2019

December 31,
2018

ASSETS
Current assets:
Cash and cash equivalents $ 116,267 $ 191,883
Restricted cash 8,000 8,000
Accounts receivable, net 4,033 2,993
Notes receivable, current portion 30,964 13,600
Biological assets 6,825 6,788
Inventory 26,554 23,177
Other current assets 8,579 1,810
Total current assets 201,222 248,251
Notes receivable, net of current portion 1,776 3,076
Property, plant and equipment, net 51,733 31,855
Right-of-use asset 29,860
Intangibles assets, net 113,019 112,830
Corporate investments 5,000 5,000
Acquisition deposits 16,416 1,350
Goodwill 69,407 69,407
Other assets 5,435 6,830
TOTAL ASSETS $ 493,868 $ 478,599
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable $ 9,617 $ 4,694
Other current liabilities 6,633 6,715
Contingent consideration, current portion 11,520 11,520
Income tax payable 6,018 4,120
Lease liability, current portion 2,172
Notes payable, current portion 10,480 11,806
Total current liabilities 46,440 38,855
Notes payable, net of current portion 18,404 19,098
Lease liability, long-term 29,391
Deferred tax liability 18,173 18,173
Contingent consideration, net of current portion 18,190 18,190
Other long-term liabilities 1,024 4,486
TOTAL LIABILITIES 131,622 98,802
STOCKHOLDERS’ EQUITY:
Capital stock 438,961 435,495
Accumulated deficit (81,909 ) (61,270 )
Stockholders’ equity attributed to Harvest Health & Recreation Inc. 357,052 374,225
Non-controlling interest 5,194 5,572
TOTAL STOCKHOLDERS’ EQUITY 362,246 379,797
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 493,868 $ 478,599

Non-IFRS Financial and Performance Measures

The Company provides additional financial metrics that are not prepared in accordance with IFRS. Management uses non-IFRS financial measures, in addition to IFRS financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate the Company’s financial performance. This non-IFRS financial measure is Adjusted EBITDA.

Management believes that these non-IFRS financial measures reflect the Company’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-IFRS financial measures enable investors to evaluate the Company’s operating results and future prospects in the same manner as management. These non-IFRS financial measures may also exclude expenses and gains that may be unusual in nature, infrequent or not reflective of the Company’s ongoing operating results.

As there are no standardized methods of calculating these non-IFRS measures, the Company’s methods may differ from those used by others, and accordingly, the use of these measures may not be directly comparable to similarly titled measures used by others. Accordingly, these non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Reconciliations of Non-IFRS Financial and Performance Measures

The table below reconciles Net (Loss) Income to Adjusted EBITDA for the periods indicated.

Three Months Ended
March 31,
2019 2018
(unaudited)
Net (loss) income (IFRS) before non-controlling interest $ (20,426 ) $ 811
Add (deduct) impact of:
Net interest and other financing costs 775 120
Income tax 2,398 608
Amortization and depreciation (1) 2,076 377
Other income (loss) 49
Foreign currency gain 375
Share-based compensation expense 3,303
Other expansion expenses (pre-open) 1,130
Transaction & other special charges 5,622
Adjusted EBITDA (non-IFRS) $ (4,698 ) $ 1,916
(1) Includes $583 of depreciation reported in cost of sales.

About Harvest Health and Recreation

Headquartered in Tempe, Arizona, Harvest Health & Recreation Inc. is a multi-state cannabis operator (MSO) and vertically-integrated cannabis company. Subject to completion of announced acquisitions, Harvest will have the largest footprint in the U.S., with rights to 230 facilities, of which 142 are retail locations and more than 1,580 employees across 17 states. Since 2011, the company has been committed to aggressively expanding its Harvest House of Cannabis retail and wholesale presence throughout the U.S., acquiring, creating and growing leading brands for patients and consumers nationally and continuing on a path of profitable growth. Harvest’s mission is to improve lives through the goodness of cannabis and is focused on its vision to become the most valuable cannabis company in the world. We hope you’ll join us on our journey: https://harvestinc.com.

Facebook: @HarvestHOC
Instagram: @HarvestHOC
Twitter: @HarvestHOC

Forward-Looking Information

Certain statements in this announcement are forward-looking statements and are prospective in nature. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements.

These statements generally can be identified by the use of forward-looking words such as “may”, “should”, “will”, “could”, “intend”, “estimate”, “plan”, “anticipate”, “expect”, “believe” or “continue”, or the negative thereof or similar variations. Forward-looking statements in this news release include, but are not limited to, information concerning the ability of the Company to successfully achieve business objectives, and expectations for other economic, business, and/or competitive factors. Those assumptions and factors are based on information currently available to the Company. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information and statements are the following: the ability of the Company to develop the Company’s brand and meet its growth objectives, the ability of the Company to complete acquisitions that are accretive to the Company’s revenue, the ability of the Company to obtain and/or maintain licenses to operate in the jurisdictions in which it operates or in which it expects or plans to operate. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Readers should not place undue reliance on forward-looking statements and forward-looking information. The forward-looking information contained in this release is made as of the date hereof and the Company assumes no obligation to update or revise any forward-looking statements or forward-looking information that are incorporated by reference herein, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

The foregoing statements expressly qualify any forward-looking information contained herein. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice.

Additional Information

The financial information reported in this news release is based on unaudited management prepared financial statements for the year ended December 31, 2018. Accordingly, such financial information may be subject to change. The audit process is nearly complete and fully-audited financial statements for the period will be released and filed under the Company’s profiles on SEDAR at www.SEDAR.com by April 30, 2019. All financial information contained in this news release is qualified in its entirety with reference to such audited financial statements. While the Company does not expect there to be any material changes, to the extent that the financial information contained in this news release is inconsistent with the information contained in the Company’s audited financial statements, the financial information contained in this news release shall be deemed to be modified or superseded by the Company’s audited financial statements. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation for purposes of applicable securities laws.



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